Quote:
Originally Posted by spewmachine
i read the entire paper but im not sure what post-tax transfers mean. is it something like these payrolltaxes?
No. A post-tax transfer just means government spending on social programs, eg education, healthcare, retirement, welfare, etc.
Think of it like this. Let's say there is some base level of income inequality based on wages and investment returns. If the government uses a flat income tax, the inequality after the tax would be the same. If the government uses a progressive income tax, the inequality after the tax will go down. This is because the government took a higher proportion of income from higher than average earners and a lower proportion from lower than average earners. That is one way government policy can affect income inequality.
However, another way government policy can affect inequality is through spending. For instance, let's say a country had a flat tax rate at 50%, which is then distributed equally to everyone (i.e. a post-tax transfer). That would also reduce inequality, because people who make more money pay more in taxes even at a flat rate, whereas the distribution is the same for everyone.